Hong Kong Dealers in Precious Metals and Stones (DPMS) — PEP and Sanctions Screening Guidelines
Precious metals and stones have historically been a popular medium for global money laundering and illicit fund transfers, given their high liquidity, small size and ease of conversion into cash. Since the implementation of the registration regime by the Hong Kong Customs and Excise Department (C&ED), Dealers in Precious Metals and Stones (DPMS) have been formally brought under the regulatory framework. In particular, when Category B registrants process specified cash transactions of HKD 120,000 or above, they are required to implement screening mechanisms for politically exposed persons (PEPs) and international sanctions lists to comply with statutory requirements.
I. Core Definitions
Classification and Definition of Politically Exposed Persons
Pursuant to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Chapter 615 (AMLO), PEPs are generally classified into the following three categories:
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Non-Hong Kong PEPs: Individuals who is or has been entrusted with a prominent public function in a place outside Hong Kong (e.g., head of state, head of government, senior politician, senior government, judicial or military official, senior executive of a state-owned corporation and an important political party official, etc.). Such persons are automatically deemed high-risk customers by law and must be subject to Enhanced Due Diligence (EDD).
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Hong Kong PEPs: Individuals who is or has been entrusted with a prominent public function in a place within Hong Kong (e.g., head of government, senior politician, senior government or judicial official, senior executive of a government-owned corporation and an important political party official, etc.).
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International Organisation PEPs: Individuals who is or has been entrusted with a prominent function by an international organisation (e.g., the United Nations, the World Bank). Important Note: Screening must not be limited to the PEPs themselves; it must extend to their immediate family members and close associates.
Financial Sanctions
Lists of designated terrorists, terrorist organisations and sanctioned entities/individuals promulgated pursuant to United Nations Security Council (UNSC) resolutions or Hong Kong legislation (such as the United Nations (Anti-Terrorism Measures) Ordinance and the United Nations Sanctions Ordinance). Dealers in Precious Metals and Stones are strictly prohibited from conducting any commercial transactions with any individual or entity listed on sanctions lists.
II. Practical Screening Procedures and Risk Control
When conducting PEP and sanctions screening, Dealers in Precious Metals and Stones should establish standard operating procedures based on a Risk-Based Approach (RBA):
Screening Timing
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Upon Establishment of Business Relationship: Before entering into a long-term contract or establishing a business relationship with a customer.
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Before Conducting Specified Transactions: Before conducting a single or linked specified cash transaction of HKD 120,000 or above.
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Ongoing Monitoring and Periodic Rescreening: International sanctions lists are updated at a high frequency; enterprises should conduct dynamic rescreening of their existing customer base on a regular basis.
Screening Scope
In C&ED enforcement inspections, a common compliance deficiency is "screening only the licence holder or the direct transacting party". A compliant screening scope must cover:
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The customer themselves (individual account).
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The authorised representatives of corporate customers.
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The beneficial owners of corporate customers (the ultimate natural persons holding shares or voting rights).
III. Response Procedures for PEP and Sanctions Matches
When the system flags a potential match, compliance personnel should follow a strict tiered response procedure:
風險類別 Risk Category | 確認命中處置程序 Confirmed Match Procedures | 監管申報要求 Regulatory Reporting Requirements |
|---|---|---|
Sanctions List |
| Statutory Mandatory Reporting: Must submit a Suspicious Transaction Report (STR) to the Joint Financial Intelligence Unit (JFIU) as soon as possible. |
Politically Exposed Person (PEP) |
| If the source of funds is unclear or unusual transaction patterns are identified, submit a Suspicious Transaction Report (STR). |
IV. Critical Compliance Gaps and Key Enforcement Priorities
Based on recent enforcement actions by the C&ED against Designated Non-Financial Businesses and Professions (DNFBPs) and Financial Institutions (FIs), Dealers in Precious Metals and Stones should pay particular attention to the following operational deficiencies:
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Pitfall 1: Over-reliance on Manual Searches (e.g., Google):
Issue: Searching customer names using search engines alone cannot satisfy the requirements for real-time updates and international database coverage, and makes it difficult to retain an audit trail.
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Pitfall 2: Ignoring the Beneficial Owners of Corporate Customers:
Issue: Screening only the contracting corporate entity without looking through to verify the politically exposed persons or sanctioned individuals behind it who exercise actual control.
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Pitfall 3: Overlooking "Structuring / Linked Transactions":
Issue: Customers attempting to circumvent the HKD 120,000 threshold by splitting multiple small cash transactions, where the system lacks linked transaction alerts resulting in missed screening.
V. Key Takeaways
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Clear Compliance Threshold: Where any specified cash transaction of HKD 120,000 or above is involved, Dealers in Precious Metals and Stones must possess the corresponding customer due diligence (CDD) and PEP/sanctions list screening capabilities.
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Zero Tolerance for Sanctions: For sanctions list matches, transactions must be immediately rejected and reported.
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PEP Focus on Source of Funds: Encountering a PEP customer does not require outright rejection; the focus should be on obtaining senior management approval and rigorously verifying the legitimate source of their wealth and funds.
VI. Frequently Asked Questions (Q&A)
Q1: Under what circumstances must Dealers in Precious Metals and Stones mandatorily conduct PEP and sanctions list screening?
A: Upon establishment of a business relationship (e.g., entering into a long-term contract or account opening), before conducting specified transactions (single or linked cash transactions of HKD 120,000 or above), and during ongoing monitoring (rescreening existing customers when international sanctions lists are dynamically updated).
Q2: Is the screening scope limited to the PEPs themselves?
A: Not limited to the persons themselves. Pursuant to AMLO, the PEP screening scope must extend to their immediate family members and close associates.
Q3: If the system indicates a customer match on an international sanctions list, how should the DPMS handle it?
A: Immediately terminate or reject any transaction. Strictly refrain from providing or disposing of any funds or precious items, and must submit a Suspicious Transaction Report (STR) to the Joint Financial Intelligence Unit (JFIU) as soon as possible.
Q4: Is using only Google or other search engines to search customer names for compliance background checks acceptable to C&ED?
A: Not acceptable. Over-reliance on search engines cannot ensure the real-time currency and international coverage of databases, and cannot retain a compliant audit trail for C&ED spot checks. Enterprises should adopt professional AML list screening systems.
Q5: What are the benefits of using an automated AML screening system for DPMS?
A: Automated systems can provide seconds-level list matching, automatic risk assessment combining country and customer background, ongoing customer monitoring, and one-click export of reports meeting regulatory standards, significantly reducing the risk of frontline false positives and false negatives.
VII. Professional Services ComplianceOne Provides for DPMS
ComplianceOne Consultants Limited ("ComplianceOne") has successfully assisted numerous jewellers and precious metals investment companies in completing DPMS registration, including both Category A and Category B applications. We provide the following one-stop services:
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Eligibility Assessment: Identify your company’s business model and recommend the most suitable registration category
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Application Preparation: Assist in organising business registration documents, completing application forms and submitting them to the C&ED.
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AML System Development (Category B): Draft customer due diligence policies, establish ongoing monitoring and suspicious transaction reporting mechanisms
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Staff Training: Provide AML compliance training for management and staff
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Independent Audit (Category B): Conduct periodic independent reviews of the AML system
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Annual Renewal: Assist with Category B Registration renewal applications
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Automated Screening System: Provide compliant screening and AML/customer management systems
Note: ComplianceOne is a licensed Trust or Company Service Provider (TCSP Licence No.: TC007463), with extensive experience in handling various financial and non-financial compliance matters.
Conclusion
Effectively implementing PEP and international sanctions list screening is a key defence line for Dealers in Precious Metals and Stones to satisfy the statutory regulatory requirements of the C&ED. In the event of a sanctions list match, enterprises must adhere to the "zero tolerance" principle, immediately rejecting the transaction and reporting to the JFIU; for PEP customers, EDD and senior management approval should be implemented. By adopting professional automated screening systems and properly retaining audit trails for at least 5 years, dealers can significantly enhance their risk control efficiency and, while meeting regulatory requirements, build a robust and reliable international business reputation.